Demand for workers continues sharp decline, finds labour market study

Recruitment activity has continued to weaken, a pulse check of the UK’s job market taken during February has found.

Continuing economic uncertainty and hesitancy to commit to new hires amid cost pressures led to a further marked fall in permanent placements, while temp billings dropped at the steepest rate since mid-2020, the latest KPMG and REC UK Report on Jobs survey, compiled by S&P Global, has found.

Vacancies data showed that overall demand for workers declined at the quickest rate since the start of 2021. The slowdown in hiring drove further marked increases in candidate availability, while pay pressures cooled. Permanent starters’ pay increased at the slowest rate since March 2021, while temp pay growth was among the weakest seen over the past three years.

The survey data, taken between 12 and 23 February from 400 recruitment consultancies, signalled further increases in rates of starting pay for both permanent and temporary workers, as employers raised rates of pay amid the higher cost of living and competition for highly-skilled candidates. However, the rate of salary inflation was the slowest recorded in nearly three years, with several recruiters noting that employer budgets were now tighter after a period of rapidly rising pay. Temp wage growth also moved further below the long-run trend level during February.

There was an accelerated reduction in demand for workers during February. This was primarily driven by a fall in permanent staff vacancies. Temporary job opportunities fell for the first time in three-and-a-half years, albeit only marginally.

Correspondingly, the availability of workers continued to expand sharply amid reports of redundancies and a slowdown in hiring activity. Overall, labour supply expanded at a historically sharp pace, albeit one that was softer than those seen in the previous four months. London saw the sharpest drop overall in permanent placements, with the Midlands being the only English area to register an increase in temp billings.

The retail and executive/professional sectors noted the steepest rates of contraction. Engineering and health/social care meanwhile saw vacancies increase. The retail and construction sectors led the downturn in demand for temporary workers. Only blue collar and engineering noted increases in demand for short-term staff during February.

Jon Holt, chief executive and senior partner of KPMG in the UK, said there was a continuing “impasse between economic uncertainty and hiring decisions”. He added that chief executives were ready to invest and grow, but “the reality is they’re being held back by the prospect of weak demand”.

Holt said the Budget only provided “limited headroom for change”. Businesses would ideally have liked a Budget that drove investment, boosted economic growth and helped productivity bounce back, he said, “while it was encouraging to see measures to increase labour supply”.

Neil Carberry, REC chief executive, said the temporary labour market was “the unsung hero” of the economic uncertainty of recent years. “It keeps the cogs of the economy turning amid uncertainty and labour shortages – but it still needs nurturing.”

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